An owner of a piece of real property may purchase property owners insurance to protect against losses associated with the real property, such as for example fire damage, wind damage, water damage, and other damage that may be experienced in connection with the property. Accordingly, if for example a tree is blown down and falls into a structure on the real property, such property owners insurance would typically cover the cost to repair the structure. However, and significantly, the property owners insurance likely does not cover the cost to replace the fallen tree with a similar tree, even if the fallen tree represented an amount of value to the real property that has been lost.
More generally, property owners insurance typically covers losses to structures on real property and related improvements (i.e., fences, pipes, light posts, patios, walkways, etc.), but does not cover losses to natural features on real property (i.e., trees, rock formations, ponds, shrubs, etc.). Moreover, and importantly, such property owners insurance does not cover losses that are intangible. That is, if a certain piece of real property includes a pleasant view, such as for example a view of a city skyline, a valley, an ocean, a river, a statue, a park, etc., and the pleasant view is lost because another property owner builds a blocking structure on land thereof, the intangible loss of the view associated with a piece of real property is not covered by a corresponding property insurance policy.
In a similar manner, a property insurance policy does not typically cover a loss associated with a corresponding piece of real property that arises from an objectionable use of adjacent property, such as for example a neighboring property that is not well-maintained, that emits an objectionable odor, or that is employed for illicit purposes. Moreover, a property insurance policy does not typically cover a loss associated with a corresponding piece of real property that arises from overall market conditions, such as for example an overall drop in real estate value due to market conditions, not to mention a loss that arises from specific factors associated with the real property that are beyond the control of the owner of the real property, such as for example if a toxic chemical is spilled on the property and is not easily remediated.
Real property normally increases in value over time due to market conditions based on factors such as a finite amount of land, inflation, and regional real estate development. However, the value of real property can nevertheless decrease due to adverse market conditions as well as losses in connection with the real property that are perceived to be adverse to the overall desirability of the real property. Particularly with regard to adverse market conditions, and as is set forth in U.S. Pat. Pub. No. 2004/0260578, there are a variety of political, social and economic events that can cause fluctuations resulting in suppressed real estate values lasting for varying periods of time. Some fluctuations can be caused by an industry wide recession such as experienced in the oil and gas sectors in the 1980s, or the downturn in certain high technology sectors at the beginning of the twenty-first century. Global economic shifts, such as the increased production of high quality low cost steel in the Pacific Rim can cause economic displacement in regions with economies fueled by steel production. Sometimes, such downturns can be permanent.
An owner of real property ought not to be concerned with a loss in the market value of the real property for whatever reason, unless of course such loss impinges financially on the owner, such as for example if the owner wishes to sell the property or pledge the property as collateral, which of course is a rather large exception. Nevertheless, in many cases, if such an owner can wait, the market value lost is regained. Sometimes, however, the loss of market value is permanent, such as for example if not caused by overall market conditions, or the loss of market value does indeed impinge financially on the owner because the owner desires to sell or pledge the real property. In a particularly unwanted scenario, the owner is forced to sell the real property at a loss for whatever reason, and the sale value exceeds debt such as a mortgage that must be repaid at such sale, in which case the owner may be required to contribute additional capital at the sale to repay the debt.
Accordingly, a need exists for an insurance policy that covers at least some losses to real estate market value associated with a piece of real property.